1. This is an appeal filed by Shri S. Venkata Kannaiah of Khammam against the common order of Commissioner (Appeals), Hyderabad, for the assessment years 1979-80 and 1980-81.
2. The assessee is an employee of Lipton India Ltd. working as a salesman in Khammam. The assessee received emoluments of Rs. 24,011 and Rs. 29,269, which included commission receipts of Rs. 9,241 and Rs. 12,583, respectively. Lipton India Ltd. treated the entire payment as salary and deducted tax therefrom. The assessee, however, claimed the commission part as not taxable on the ground that the assessee had surrendered the commission to its customers in order to enable him to arrive at the targeted sales. The inspector authorised to make the assessment, accepted the returns under Section 143(1) of the Income-tax Act, 1961 ('the Act') without any discussion of the assessee's claim.
The Commissioner on going through the records was of the view that the commission being a part of salary and not an allowance, had to be included in the assessment. He held in the common order under Section 263 of the Act that the commission was as much a reward for the assessee's services as an employee as the regular salary payment. He was also of the view that Section 10(7^) of the Act could not apply to this amount and that there was nothing to indicate in the records that the commission was meant to reimburse the assessee for expenses incurred during the course of the services. It is in this view that he directed the ITO to include the commission amounts in the taxable income of the assessee for the years under consideration. The assessee is in appeal. It is contended that the Commissioner has no jurisdiction to assume prejudice. It is further contended that the amount was in the nature of allowance under Section 10(141 and that it has been spent away. It was argued that the Commissioner was not right in assuming that the assessee had no evidence also for producing before the Commissioner in the view of law taken by him. The assessee had no opportunity to place all the facts clearly on this issue. It was also alternatively claimed that the commission was given under a separate agreement reproduced in the order of the Commissioner, which made it taxable under other sources and, therefore, eligible for the expenditure thereon. The learned departmental representative, on the other hand, pointed out the decision of the Supreme Court in the case of Gestetner Duplicators (P.) Ltd. v. CIT  117 ITR 1 and the Special Bench decision of this Tribunal in the case of Mettur Chemical & Industrial Corpn. Ltd. v. ITO  3 ITD 612 (Mad.). The assessee, however, reiterated the arguments which were unsuccessful before the Commissioner and pointed out to a Third Member decision of this Tribunal in Sixth ITO v. Narendra V. Patel  11 ITD 587 (Bom.).
3. We have carefully considered the records as well as the arguments.
On the question of jurisdiction, we are of the view that the assessee has no case inasmuch as the assessee's submission along with the return for exclusion of the commission payment was not considered at the time of the assessment. Since commission is prima facie income, non-enquiry in respect of the same, where enquiry is prima facie warranted constituted prejudice. However, the assessee's claim that the whole or any part of the commission is not liable to tax would need further examination than what has been decided by the Commissioner. It is not correct to say that commission received from an employer should always be treated as part of salary and never as an allowance or an amount distinct from salary. It is a question of fact in each case as to the real nature of the receipt whatever might be its nomenclature. The decision of the Supreme Court in Gestetner Duplicators (P.) Ltd.'s case (supra) was rendered in the context of employer and not the employee.
It was also not concerned with the question whether such commission had the character of income in a particular case. So is the decision of the Special Bench of this Tribunal. On the other hand, there have been a number of decisions of this Tribunal holding that anything called commission, incentive bonus or by any other name can be treated either wholly or partly as an allowance in the facts of a particular case. In cases of Development Officers of Life Insurance Corporation of India (LIC), incentive bonus to the extent of 40 per cent or any amount that might have been shown to have been actually expended had been treated as not liable to tax for one reason or the other in a number of decisions of this Tribunal, as for example in the cases of ITO v. Raj Kumar Sethi  2 SOT 135 (Chd.), M.F. Varghese  17 ITJ 331 (Bom.) and K. Kami Reddy v. ITO  8 ITD 633 (Hyd.). Similarly, in the case of other employees, commission or allowances not specifically described have also been held on the facts and in the circumstances of those cases to qualify for treatment either wholly or partially as an allowance exempt under Section 10(74) or at any rate as an amount not to be treated as part of salary as in the case of P.S. Balasubramaniam v. ITO. Here, the assessee was an employee of Ramington Rand India and had received commission for securing orders and the assessee had incurred extra travelling expenses to earn that commission. The most recent decision is that of a Third Member in the case of Narendra V.Pate! (supra), again that of Development Officer of LIC. It was found in this case that account must necessarily be taken of all losses and expenses in order to arrive at salary in a commercial sense. The concept of real income as laid down by the Supreme Court in the case of Badridas Daga v. CIT  34 ITR 10 was relied upon among other things. Even as observed by this Tribunal in the decision in K. Kami Reddy's case (supra), the mere fact that a particular receipt may be called bonus or commission does not rule out the applicability of exemption under Section 10(14) either partially or in whole, if the circumstances warrant such a treatment. Even the other argument that it is possible for an employee to have a dual relationship with the employer so as to justify a different treatment for part of the receipt cannot entirely be overlooked. The decision of the Supreme Court and the Special Bench cited by the learned departmental representative, do not rule out such a possibility inasmuch as from the point of view of the employer whether the payment is under a salary contract or under a different contract, both the amounts may partake the nature of salary for the limited purpose of deduction from its business income. In the hands of the recipient, it is possible that one payment may be for services rendered in his capacity as a whole-time or part-time employee and the other as a free agent, who is rewarded for independent services with reference to the value of such services. However, we do not consider it necessary to elaborate this part of the argument as, in our view, the commission received in the assessee's case has to be treated, at least partly, as an allowance intended to meet the extra expenditure in the performance of the duties of an office of an employee within the meaning of Section 10(14). The fact that it was treated as salary for the purpose of tax deduction at source, or the fact that it may be salary from the point of view of the employer, cannot abridge or take away the assessee's right to exemption if it is otherwise eligible. The department itself, as pointed out by the Tribunal, Chandigarh Bench, in its decision in Raj Kumar Sethi's case (supra), has in F. No.14/8/65/IT(A-I), dated 22-8-1965 considered 40 per cent as reasonable part of expenses from commission, while it is similarly noticed that in the case of commission to agents of Unit Trust of India (vide Board's F. No. 8/7/61/-IT(A-I), dated 13-11-1961 and in the case of agents of National Savings Certificates in Circular No. 25 (LXVII-S)-D, dated 7-6-1955) allowance of 40 per cent of gross receipts could be allowed as a deduction though the rate was fixed in the context of income under other sources. Hence, there is nothing unreasonable in treating a part of a commission alone as having an income character. In fact, it will not be reasonable to bring the entire receipts as income, where all the pointers indicate that not all receipts could have income character. We do not, however, agree that the assessee has made out a case for total exemption. Only the amount that has either been shown to have been expended or can reasonably be presumed to have been expended can be allowed as exemption. It will not be correct to say that the entire amount has to be exempted merely because the assessee had made a claim that he has parted with the entire commission in order to arrive at the targeted sales. The assessee had to establish this fact at the time of the original assessment. This fact has not been gone into. Before the Commissioner there has been no detailed examination of this question.
It is for this reason that we consider it necessary to modify the Commissioner's order remitting the issue back to the ITO for a fresh consideration of the assessee's entitlement to exemption in the light of what we have slated.
4. In the result, the assessee's appeals will be treated as partly allowed. The additions directed by the Commissioner will now stand remitted to the ITO for further consideration in accordance with law.